Hamburg tries high-risk market

Plus: CMGI may be prowling for German ‘Net company

ThomCalandra

At least, that’s what the stock market in the German city of Hamburg is hoping. The Hamburg bourse (that’s what they call stock exchanges here, folks) just launched a High-Risk Market. You can see it at www.highriskmarket.de.

It’s designed for mostly U.S. and Canadian companies that trade as penny stocks on the over-the-counter Nasdaq bulletin board.

The Hamburg market, like the much larger Frankfurt stock exchange with its successful Neuer Markt (250 high-growth stocks), is trying to recreate itself out of the ashes of the old economy. Hamburg is a northern Germany city that represents centuries-old banks, weather-beaten fishermen and a red-light district that hosted the Beatles in the group’s early days.

The city, while fast gaining a reputation for smart fashion houses and flashy media businesses like the Tomorrow group (www.tomorrow.de), is still legions removed from the high-flying, crazy world of over-the-counter penny stocks.

Still, says Kay Homann, the Hamburg exchange’s second highest-ranking executive, the future of Europe’s old-style stock markets depends on fast-moving issues from the United States and Asia. “Plus, there are no requirements that bulletin board companies have to agree to be listed. This makes it easier for us,” Homann told me.

The problem for the Hamburg exchange is timing. When it decided in March to list these over-the-counter and pink-sheet stocks, technology and penny stocks were peaking.

Many of the 40 or so tiny stocks on this new exchange have been in crash mode. Harcourt Companies (HRCT) was selling for $18 when Hamburg listed the Los Angeles firm, which is trying to build a China Internet business. Now it sells for about $6.

That hasn’t deterred Hamburg officials, or the German market-makers who take positions in these obscure stocks. Nasdaq over-the-counter stocks typically have fewer reporting requirements to their shareholders. They are also thinly traded, or had been until last October or November, when their trading activity and prices surged in the United States.

Homann, who launched the high-risk market, says he’s doing 150 individual trades a day. Some of the trades are for 10,000 or more shares. Homann says small European investors can put their arbitrage caps on. An investor can take, say, a cheap position in Europe early in the day, then cash in later when the shares trade over the counter in the United States.

“It’s a way to add more liquidity to NASDAQ small-caps (that) trade here in Germany,” said Klaus Madzia, publisher of the Hamburg-based newspaper Net-Business.

The Germans, says Homann at the bourse, won’t just accept any old penny stock. They say they have scruples. The free float of the shares must be at least 25 percent. This way, investors cannot easily manipulate these thinly traded stocks. The companies also must publish regular earnings reports, according to Securities and Exchange Commission regulation standards.

The amazing part of all this is that the companies -- with names like Tri-National Development (TNAV), Nano-Pierce Technologies, Interactive Objects and InsiderStreet.com (NSDR) -- don’t have to agree to be listed in Hamburg.

Most, however, don’t mind. Many of these scrappy companies have no Wall Street following, have stocks that trade for pennies and love the international exposure. Plus, the market maker for the listings, Boersenmarkler Schnigge, is one of Germany’s largest and most reputable.

Klaus Pinkernel, the Schnigge broker in Berlin who deals in these tiny stocks, says he gets at least one call a day from a North American CEO, looking for a Hamburg listing. And why not? At least a CEO can tell shareholders the company has some baggage in Hamburg.

“Why not take the best of these bulletin-board and pink-sheet stocks and create a market for Europeans looking for growth,” says Pinkernel, who makes a market in about half of the 40 or so stocks listed on the market.

“More or less every day, some company from North America calls and says they want to be listed,” he says. One of his most active stocks is Rhombic Corp. Vancouver, Canada, company that is developing Internet products. Its shares have been on a roller-coaster rise, much of it downhill in recent weeks.

CMGI prowling Europe

It’s a wonder more Internet companies with buying power aren’t prowling Europe for partners. Executives close to one German Internet holding company, United Internet AG, say CMG Information Services (CMGI) is considering a bid for United. A spokesman at diversified German Internet content company United Internet in Germany, Markus Schaps, declined to comment Friday. “I cannot answer this question,” Schaps said.

United Internet shares trade on Germany's Neuer Markt for high technology stocks. The company, whose market capitalization is about $1 billion, owns stakes in several Germany-listed Internet properties, including Jobs&Adverts, Adlink and Jobpilot.de. United Internet has stakes in 17 holdings, including e-mail services company GMX, which looks to sell its shares to the public in Germany later this month. “GMX has 4 million users in Germany, which is huge for Europe,” says Deutsche Bank Internet analyst Markus Kraemling in Frankfurt.

Shares of United Internet had risen as much as 10 percent Friday afternoon in Frankfurt. A CMGI spokesperson in the United States said the company does not comment on speculation.

Kraemling said he had not heard speculation about a United bid. Still, the analyst said United Internet and the far larger CMGI (market cap: $15 billion) are similar. Both take partial or whole stakes in Internet content companies. CMGI’s Alta Vista on Friday named an executive, Pierre Paperon, as president of AltaVista Europe.

CMGI owns 17 percent of Lycos (LCOS), which on Friday was said to be in talks with Spanish Internet provider Terra Networks about a global alliance. See full story.

Media Metrix reports that United Internet AG is the 13th largest Internet company in Germany, as of March. The company has a reach of about 29 percent of German Internet users, or 2.5 million unique users.

Thom Calandra is editor-in-chief of CBS MarketWatch and FTMarketWatch.

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